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Mark Graff Featured in Financial Planning

RIA Leaders 2016

Want to know what keeps the CEO of the No. 1 firm on this year’s list of the country’s top RIAs awake at night? Romancing six to eight planners a week in a never-ending quest for the right talent. It takes anywhere from 20 to 30 meetings to produce just two to three hires a year for Oxford Financial Group, the Midwestern firm based in Carmel, Ind., with nearly $14 billion in assets under management.

And sometimes even that isn’t enough. “There was one guy who I extended an offer to who said yes, and the next day he went to work at a family office,” says Oxford’s CEO, Jeffrey Thomasson, who founded the firm more than 30 years ago. “I had been doing the romance with him for six months. Everything was going pretty cool and it was just like, ‘Oh my goodness.’ ”

It’s not easy being one of the largest RIAs in the country, even with RIA AUM growth outpacing that of wirehouses. Finding the right talent in a small pool of the most qualified advisors is tough — especially when you can’t dangle a name brand like Credit Suisse or J.P. Morgan before them, Thomasson says.

It’s challenging and costly to keep up with rapid regulatory and technological change. And it’s hard, especially for firms farther down the list, to fend off aggregators, roll-up firms and a rising tide of robo advisors, all of whom are vying for some of the same clients.

The firms on Financial Planning’s 5th annual list of the country’s top RIAs are meeting these challenges while resisting the many temptations that can compromise their work as fiduciaries and undermine their independence.

RAREFIED AIR

The overall advisory space, including broker-dealers and RIAs, amounted to $19.1 trillion in assets at the end of 2014, with independent RIAs managing $2.7 trillion of those assets, according to research firm Aité Group.

Out of the 59,422 RIAs that manage this chunk, Financial Planning builds a selective ranking of U.S.-only independent RIAs every year. The list has been expanded to 150 from 100 firms. This illustrates just how rarefied the air becomes once firms start managing billions of dollars. A difference of just $649,000 in AUM separates the smallest firm on the list, at No. 150, from No. 75. But getting from the middle of the pack to No. 1 takes a stretch worthy of Plastic Man — a leap of $12.3 billion in AUM.

To capture truly independent firms, we sort for those that remain free of affiliations with broker-dealers, insurance firms, banks and large outside investors (see Methodology). This year, Financial Planning partnered with Discovery Data, which provided custom analytics of SEC filings.

POPPING ON AND OFF

That means firms pop on and off the list from year to year, as they launch lines of business or change their ownership structure.

“It gets harder as you get bigger, because you are always tempted to do some of these side businesses” that can come with commission sales or external shareholders, says Russ Hill, the CEO and chairman of the No. 12 firm, Halbert Hargrove in Long Beach, Calif. “You can do that and be a fiduciary, but it’s hard and it’s expensive.”

In fact, three of the four firms to grace our annual cover since the list’s inception in 2012 subsequently fell off the list entirely. GenSpring was first, in 2013, after a dust-up with its bank owners led to a departure of the firm’s management. A GenSpring co-founder, Maria Elena “Mel” Lagomasino, has returned to the list with the independent firm W.E. Family Offices, at No. 14 this year.

Aspiriant dropped off in 2014 after launching a line of in-house mutual funds that require additional regulation from FINRA. Banyan Partners failed to qualify in 2014 after its founder sold to Boston Private Bank & Trust for $60 million.

Creative Planning, No. 5 in 2014, was poised to supplant Oxford in the No. 1 slot this year, but insurance company affiliations disqualified it.

PAINSTAKING GROWTH

The firms that appear on the list pursue a wide variety of growth strategies, often simultaneously. These range from acquiring other firms, to offering clients unique lines of planning services (geared, for example, to millennials or impact investors) or souped-up technological services. Many of these strategies are painstaking to develop.

Halbert Hargrove is building out its elder care management offerings as it sees demand growing rapidly, Hill says. To help nurture growth, it is finding and grooming young local planning talent from nearby California State University at Long Beach. Halbert Hargrove is also taking pains to buttress its fiduciary claims by undergoing annual audits to qualify for a CEFEX certification, run by the Centre for Fiduciary Excellence in Bridgeville, Pa.

The certification process is time-consuming, Hill says, but it builds confidence among tax experts and attorneys who will more readily refer business to a firm they believe will put their clients’ best interests first. “For us, that’s important,” he says.

OLDER FIRM MEETS BREAKAWAY UPSTART

Investing in cutting-edge technology made No. 59 Pathstone Family Office in Fort Lee, N.J., particularly attractive as a merger partner for the older and larger No. 17 firm, Federal Street Advisors in Boston. In a deal financed by the Fiduciary Network, the two firms were set to finalize their alliance on Dec. 31.

The merger “gives us a huge jump in our capability and in productivity,” says Federal Street’s CEO, John LaPann, who will become chairman of the new firm, to be named Pathstone Federal Street. “We are a 25-year-old firm that’s been pedaling as fast as it can to update its technological capacity and increase productivity. But Pathstone, having started about five years ago, has already formed themselves in a technological environment.” Pathstone has $1.8 billion in AUM.

The RIA space is a hotbed for mergers and acquisitions. There were at least 10 deals involving firms with almost $4 billion or more AUM in 2015, compared with just one the prior year, according to Park Sutton Advisors. The Federal Street-Pathstone hookup is one of them. With a combined AUM of roughly $6 billion or more, the new firm is likely to vault up among the list’s top 10 firms next year.

A YEAR OF LEARNING

No. 18 Wetherby Asset Management of San Francisco has been seeding organic growth by turning itself into a university of sorts. It is investing $180,000 to run monthly programs between March 2015 and February 2016.

The programs, celebrating the firm’s 25th anniversary, are solidifying and deepening bonds between the firms’ team members and its clients, says the founder, Deb Wetherby. One of the programs, Protecting Your Digital Privacy, attracted more than 50 clients to hear comments by Mark Graff, former chief information security officer
for Nasdaq.

“When we booked that, we did not think it would be our highest-attended event with the liveliest Q&A,” Wetherby says. “People are now thinking they have to pay attention” to digital privacy. Graff also ran internal programs for Wetherby’s compliance staff.
Other monthly topics have included mindfulness, strategic philanthropy, and the future of energy and sustainability.

The programs are enriching the firm’s culture and informing strategic discussions about its future growth, Wetherby says. Wetherby Asset Management has grown by 25% to nearly $4 billion in AUM over the past five years.

Organic growth such as this may indeed be time-consuming — just ask Oxford’s dutifully speed-dating CEO, Thomasson.

But, as Wetherby’s unique program suggests, nobody said it couldn’t be fun. “I think there’s going to be lots and lots of ways that this is going to affect us over the years,” she says. “We didn’t do this for proprietary reasons. I’d be thrilled if every firm did something like this.”